162 Executive Bonus Plans are designed for selected, key employees giving total discretion to the employer.  To be effective, it usually is used under a "C" corporation versus a "S" corporation.

Eventually, the plan will provide a source of tax-free retirement income for the participant.

Section 162 Option

Under this type of agreement, the employee purchases a cash rich insurance policy and names himself as the owner. This policy may be issued on a single insured basis or a joint insured basis, such as a husband and wife together.

The employer pays the premiums to the Life Company, which is fully tax-deductible by the employer and considered compensation to the employee.

The premiums are considered taxable income to the employee, so often times the corporation will 'double bonus' the employee.

The policy's tax advantages under IRC Section 7702, non-mec rules include tax-free accumulation, tax-free income through loans and withdrawals and tax-free transfer at death.

If the employee is also a stockholder of the company and his/her tax bracket is less than the corporate tax bracket, the 162 can be attractive to the employee-stockholder who wishes to withdraw profits from the corporation.

The Advantages

Retirement Income: This plan can be used as a substitute/supplement for a traditional qualified plan and provide a source of potential tax-free retirement income.

The executive may access his/her plan through the use of withdrawals and policy loans WITHOUT INCURRING INCOME TAX or premature distribution penalties if the contract is qualified as a non-mec under IRC Section 7702.

Portability and Peace of Mind

An Executive Bonus Plan is completely PORTABLE and provides security, not only for the executive, but for the family as well.

The plan is also self-completing as upon the executive's death, the survivor's benefits provide for the family's future financial security.

Benefits to The Employer

  • Bonuses are tax-deductible.
  • The employer has discretion in the selection of highly compensated participants.
  • No maximum or minimum contribution requirements.
  • No IRS approval required.
  • Administrative expenses are nominal.
  • Plan may be terminated at anytime, pursuant to the agreement.
  • Plan design is simple and straightforward.
  • Golden handcuffs are created when using a restricted bonus arrangement.

Benefits to The Employee

  • The employee owns the plan.
  • The plan can be designed to meet personal needs.
  • The employee's income tax costs can be covered by an additional bonus.
  • Tax-free income can be received from the plan via withdrawals and loans.
  • The employee has control over the plan, including beneficiary selection and asset allocation.

Funding The 162 Plan

Flexible Premium Variable Universal Life Insurance can be considered a potential funding tool for this particular strategy.

When properly established and maintained, these plans offer long-term tax advantages including access to some of the country's top professional money managers.

For example, you may find certain plans that offer the professional management services from such companies as Fidelity, Blackrock, Nationwide, Janus, Oppenheimer, American Funds and others. 

At retirement (or under an agreed upon vesting schedule) the key executive can receive federal income tax free retirement income through loans and withdrawals from the policy, providing it's qualified as a non-mec (Sec. 7702) and remains in force and is not surrendered.

These plans are offered by a prospectus only.   Be sure to read it carefully.

What We Provide

At Fielder Financial Management, Ltd. we provide the following services:

  • Helping you evaluate the feasibility of such a strategy for your situation;

  • Independent consultation regarding the proper funding tools for maximum effectiveness;

  • Sample contracts for you, your firm and/or attorney; and

  • Representation with your employer on your behalf.

Action To Take

Click HERE to obtain 162 Executive Plan information

For Faster Service Call 1-800-480-7526



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Copyright 1998 Fielder Financial Management, LTD.
All Rights Reserved.

Securities offered through Fortune Financial Services, Inc. member FINRA, SIPC.  Fielder Financial Management, Ltd. not affiliated with Fortune Financial Services, Inc.  Mark Fielder, Financial Professional, CA. Insurance Lic. # 0690576.

Disclosure:  For more complete information about variable life, including charges and expenses, obtain a prospectus by calling 1-800-480-7526. Read it carefully before you invest or send money. Investment return and principal value of an investment will fluctuate.  An investor's units, when redeemed, may be worth more or less than their original investment.  Consult your tax advisor.